Open interest

In a futures market, the term open interest is used to denote the number of futures contracts that are open - times two. Each contract between two different parties open two units of interest - one for the buyer (long) and one for the seller (short).

There are two ways to decrease the total open interest in the market: By offsetting of positions, or by delivery.

If somebody that already has a long position enter into the short side of a contract, he will effectively reduce the size of his long position. This will decrease the total open interest by two units - one for the short side of the contract, and one for the long contract that the trader had before it was offset by the short.

The other way to decrease open interest is by delivery: Actually handing over the underlying commodity (e.g, coffee) that the contract was about. There are a few types of futures contracts where this is not possible (an example is stock index futures), and "delivery" is done by marking to market on the last day.